New Age CEO
Transcript of BioCentury This Week TV Episode 128
Angus Russell, CEO of Shire plc (LSE:SHP; NASDAQ:SHPG), Dublin, Ireland
Sarah Shackelton, executive partner at Abingworth LLP, London, U.K.
PRODUCTS, COMPANIES, INSTITUTIONS AND PEOPLE MENTIONED
Bob Swanson, founder of Genentech Inc., South San Francisco, Calif.
George Rathmann, founding CEO of Amgen Inc. (NASDAQ:AMGN), Thousand Oaks, Calif.
Henri Termeer, former president, CEO and chairman of Genzyme Corp.
Susan Schaeffer, Editor
STEVE USDIN: The CEO of the future. Is anyone in pharma ready for the job? BioCentury editor Susan Schaeffer goes one on one to find out. I'm Steve Usdin. Welcome to BioCentury This Week. Your trusted source for biotechnology information and analysis, BioCentury This Week.
NARRATOR: Your trusted source for biotechnology information and analysis. BioCentury This Week.
SUSAN SCHAEFFER: The biotech industry, as we know it today, grew out of the efforts of risk-taking pioneers. Genentech founder Bob Swanson, Genzyme's Henri Termeer, Amgen founding CEO George Rathmann built their companies from tiny venture-backed start-ups to multibillion-dollar, publicly traded companies that today produce important lifesaving drugs. These unique people created the biotech industry from scratch. And now, three decades later, the entire pharmaceutical industry bears the fingerprints of these biotech pioneers.
But while these innovators overcame formidable challenges, the modern biopharma CEO faces new and different hurdles. Commercial uncertainty, rapid globalization, and the furious pace of technology change in a world of declining R&D budgets and shrinking margins will place new and increasing demands on the CEO of the future. What are the qualities that must define the next generation of biopharma leaders?
Later in the program, we'll be joined by Sarah Shackelton, a venture capitalist searching for small company CEOs who are fit for the coming challenges. But first, we welcome Angus Russell to talk about the CEO of the future. Angus is a successful CEO who is retiring from the top post at Shire. Shire is a specialty pharma company with more than $4.5 billion in annual sales.
Angus, thank you for joining us today. Our industry is at a crossroads. It's increasingly uncertain how companies will be paid for their product in the U.S. and Europe. The sources of growth are shifting to Asia and emerging markets. So what are the characteristics of the CEO who will be able to lead the biopharma company of tomorrow in this changing environment?
ANGUS RUSSELL: I think that last phrase says it all, Susan. It's a changing environment. So being able to deal with that change, to understand the nature of that change, is incredibly important. So if I think about our world and look back over time, I think we were for many years in a very homogeneous world, one where the way of doing business was pretty similar in probably about eight major countries that dominated the growth of this industry for so many years.
Now that world, as you say, is changing. We're looking to new markets in Asia, particularly China coming on-stream very fast, and both the culture and the way of doing business is very different. And the market needs are very different. So simply put, I think one of the key skills is going to be to understand these market needs and learn to innovate to actually deliver what those markets want.
SUSAN SCHAEFFER: And what kind of innovation are you talking about? Certainly in the history of our industry, innovation has really meant science and R&D. But I get the sense you're talking about something broader here.
ANGUS RUSSELL: Absolutely. I'm thinking in a much more holistic sense these days, where it would be more potentially than just a product. It could be additional services or just simply education and building awareness in a much more responsible way, one that reaches out to patients and physicians to give them the kind of information they need.
SUSAN SCHAEFFER: And can you give me an example, maybe, of the kind of services or some things going beyond the product that are necessary to meet the patient needs of today?
ANGUS RUSSELL: Sure. Let me give you two quick examples in our own business, one in our rare genetic disease business. We're delivering these enzyme replacement therapies, traditional infusion. It started off very much in a hospital setting, but increasingly those kind of services can be provided at home, which of course is more convenient to a patient and saves the cost of staying in a hospital, one of the most expensive costs in the system.
So patients now and providers there look for us to provide these home infusion services. And we're very willing to do that. That's a real need. The patients become to expect that. And it's part of our overall offering now beyond the product.
If I think about ADHD, a market we've been in for many years, a different challenge there. One of the biggest issues is the sheer stigma and lack of understanding about that disease. So providing responsible education and awareness is key, actually, to the overall delivery of a service to that market.
SUSAN SCHAEFFER: So how does this change the commercial approach? The approach up to this point, or up till very recently, has been really focused on feet on the street and detailing physicians, really focusing on the product. But you're talking about something very different going forward.
ANGUS RUSSELL: I am. And again, if I just stay with those two examples and illustrate how we've changed the commercial orientation of our business around that. So in ADHD, to provide this greater support on the educational and disease awareness side, we've actually reduced our reps substantially in the last 12 months alone. And we've redeployed many of those people into now simply providing awareness, going into schools, communities, different environments, delivering very responsible educational and business awareness tools just to help educate people to the nature of the disease, how to seek treatment options. Nothing to do with actually selling the product itself.
If I think again about the rare genetic disease business, again, it's always been a very highly scientific kind of market. The key opinion leaders there really want to have a debate about the disease and the treatment options and the latest kind of products and services. So there we have medical science liaisons as a very high proportion. It could be as much as a one-to-one relationship with sales representatives in providing a very, very technical dialogue talking about these products and services.
SUSAN SCHAEFFER: And so how does this change the way that you measure your success, or how should it change the way that you measure your success? If you're changing from a model that's based more on reps in the field to a service model that's not directly tied to sales of the product, how does the CEO of the future need to think about that?
ANGUS RUSSELL: Yeah, and again it challenges us to think about new performance indicators, as you say. How can we measure this stuff? And it was very simple in the past, maybe, with the old rep model. It was all about frequency, call rates, amount of actual market share going for a product. These were very clear, quantitative, firm kind of measures.
Today, we're much more into surveying. So now we actually ask physicians, what did you really think about the kind of support that you received from our commercial person or our medical science liaison? And we get direct qualitative feedback. So I think we are moving to a world that has to balance now between real quantitative measures that we used in the past, but also now a good mix of qualitative measures too. Another way of putting it would say it's as much about how are you doing it now, as opposed to just getting to an end objective.
SUSAN SCHAEFFER: That's great. And we'll come back to that in the next segment. We'll have more with Angus Russell in just a moment. But first, at the 22 biggest pharma and biotech companies, six CEOs have been on the job two years or less. Here are the companies with the newest CEOs.
SUSAN SCHAEFFER: We're talking with Shire CEO, Angus Russell, about what the biopharma industry will require of the CEO of the future. Angus, we were just talking about a different approach to serving the needs of patients and the different metrics of performance that that's going to require. Which raises the topic of explaining value to the marketplace. We are facing health care reform, pricing pressures around the world, a movement to outcomes-based reimbursement models. How do CEOs of biopharma companies need to manage that going forward?
ANGUS RUSSELL: I think, first and foremost, we have to recognize there are all sorts of different stakeholders involved in the health care system. And the term value and the expression of value will be different to each one of those. So for instance, if I think about the payer group, of course, value to them is about to sheer cost of treatment per day per patient. If you think about the patient themselves, the value to them is actually, are they getting better? Is it helping their underlying condition and allowing them to lead a better life? If you think about governments, again, it's worrying about the bigger picture, the demographics and, to a certain extent, like the payers, the sheer cost of health care.
SUSAN SCHAEFFER: And what do you mean by the demographics in that sense?
ANGUS RUSSELL: Most of us in the Western world now, most of the governments here, are facing, obviously, aging populations. In a sense, the sheer success of our industry is creating a problem in itself of people living longer, new people coming into the system, and just the whole demand for health care is increasing year on year at a rate that really is not sustainable. So the governments really are struggling now, I think, with this big proposition of, how do we control all of these costs and continue to deliver a reasonable level of health care to the citizens in our population?
And then to a physician, they're very much about the outcomes. They want the best treatments that they can offer to the patient. So this whole value expression has to be thought about in a very different way for each audience. And that requires again, I think, a much more segmented approach. So simply put, again, I think this is becoming a much more sophisticated world.
If I think back again 20 years, our world began and finished, almost, with the physician. They were our conduit to the patient. They were our conduit to all these other things about payers, et cetera. Now we have to have a direct relationship with almost all these audiences and learn how to talk to them and how to be able to deliver real value to them as they want it.
SUSAN SCHAEFFER: So it sounds like you're describing a situation where the nature of the relationship between the different stakeholders in the health care system really need to work together differently, and maybe even collaborate very closely. Is that what you're describing?
ANGUS RUSSELL: Exactly. And I think what I just said about the fact that we had a very distant relationship maybe at times from people like the payers, even maybe governments at times, this led to a world where we had an almost confrontational relationship with them. These were the people who were going to make our lives difficult, right? Physician was the good guy. He was going to be the guy that took our treatment. The patients, of course, need the treatment. But certainly if I single out payers and governments, these people were seen to put obstacles in our way. Maybe clinical regulators at times are viewed as a little difficult.
I think we all now need to understand we're all part of this system. We're all citizens of the world. We all benefit by an efficient health care system. So the idea of greater collaboration, mutual understanding of each other's problems, hopefully collaborating in a way that we ultimately can all solve this problem together, yeah, I think that's a way forward.
SUSAN SCHAEFFER: And so the CEO of the future needs to really participate in a cross fertilization of ideas among all of these stakeholders. Does it change how often and when in the process of developing a product the CEOs of the future are going to have to be involving these other stakeholders in the process?
ANGUS RUSSELL: Yes, it does absolutely. Fundamentally, I would say, put everything that we've been talking about here, the complexity of markets changing, very different needs in all these markets, really understanding what a market need is, all the things about the different expressions of value to a stakeholder, it's just a much more complex model to run. And I think that really takes you away from perhaps what was a very strong operational skill set in the past, where it was just about how efficient were you at cranking out a standard model around the world, to one that says, I've got to be a much more strategic in my thinking. I have to think about where am I going to go to get the best value, how am I going to deliver the best value?
Today, we're looking at very much more mature markets as well, where there are many products already in the marketplace. So one of the first things that we've addressed, certainly, in many of our areas is you now have to think about a head-to-head study against the existing standard of care as early as maybe late Phase I or Phase II.
SUSAN SCHAEFFER: And by a head-to-head study, you're talking about comparing the product that you're developing with the products that are already available in the marketplace to show some kind of an advantage.
ANGUS RUSSELL: Exactly that, because I'm going to sit down with a payer, absolute guarantee today in just about every market. And the first question they're going to ask me is, how do you compare with the existing standard of care that we have here? Are you better? If you're not, forget about a premium price, or even maybe an equivalent price. And if you don't have real robust data to show them, they're not interested anymore.
SUSAN SCHAEFFER: That's right. Next, a venture capitalist who is recruiting CEOs to lead emerging companies will join the discussion. But first, big biotech CEOs have actually been on the job longer than their big pharma peers. Here are the numbers.
NARRATOR: Now, back to BioCentury This Week.
SUSAN SCHAEFFER: We're talking about the new challenges that biopharma CEOs must face with Shire's Angus Russell. Angus offers insight from years in executive leadership from which he is about to retire. To add her perspective, we're joined by a venture capitalist who is charged with finding the next generation of CEOs.
Sarah Shackelton is an executive partner at venture capital firm Abingworth, and she's based in London. Sarah works with Abingworth's portfolio companies to build their boards and senior leadership teams. Sarah, thank you for joining us today.
Up to this point, we've been talking about challenges that CEOs of commercial stage companies will face related to globalization of markets, pricing and reimbursement pressures. What challenges are the CEOs of your portfolio companies going to face?
SARAH SHACKELTON: Well, we face some of those pressures, but the key challenge facing our CEOs at the moment is the scarcity of capital. There's less venture capital cash available in recent years. And it's much, much harder for early-stage companies to go public, and to IPO. And that has implications, obviously, for the CEOs and the challenges that they face.
SUSAN SCHAEFFER: How does that affect the kind of CEO that you're looking forward to lead the companies in your portfolio?
SARAH SHACKELTON: Well, it certainly means we put a premium on finding CEOs who have raised capital, private or public, before. That's a clear-- if they've got that proven capability, that's clearly a positive. Equally, if we can't find a CEO who's done it before, then we need to be exceptionally convinced that they'd be very, very credible with investors.
SUSAN SCHAEFFER: And Angus, let me ask you, as a CEO of a company that often looks to partner with or acquire venture backed companies, what do you look for in CEOs of smaller venture backed companies? What would you like to see them doing to ensure that they're developing assets that can help meet your pipeline needs?
ANGUS RUSSELL: Yeah, I think it's very similar in a sense of understanding how the world is changing. I think particularly when you look at the biotech industry, which has been a very fertile shopping ground for us. Many of these guys are scientists. They're a tremendous scientific endeavor, bringing new products, new technologies. The downside of that is that sometimes they're no always aware of this changing commercial world around us, how markets are changing. Therefore, what we sometimes find is it's pretty late in the process that they're beginning to think about those kind of issues. Or even worse, they'll default to leaving those for us to sort out later on.
SUSAN SCHAEFFER: And Sarah, how are you addressing this among your portfolio companies? Or how are you asking your CEOs to address it.
SARAH SHACKELTON: Right. Well, I think it's a really good point. And we know that we need to pay a lot of attention to the team around the CEO, because you've got to have specialist skill sets that are complimentary to the skills of the CEO. So if it's a later stage company-- what we would call a later stage company-- that needs to have a lot more commercial expertise, then we need to make sure that we've got that commercial expertise on the board, as well as surrounding the CEO.
And many times, if it's a later stage company, we'll actually bring in a CEO from the big biotechs and pharma, who've got some of that expertise. They understand the pricing and the reimbursement, and they could engage with big biotech and pharma on those issues.
SUSAN SCHAEFFER: And how much communication, and at what point does there need to be between larger companies and smaller companies, maybe even prior to real partnership talks?
ANGUS RUSSELL: Yeah, that's a great point. I mean, for us what's disappointing or frustrating is to find that a company is already way down the development process, maybe in their Phase III studies or late Phase II, and they haven't even begun to think of some of the needs of the marketplace. For instance, what a payer is looking for, what sort of commercial structure will that launch have.
It's very difficult to unravel if they're already as far as Phase III, or even close to filing a drug. We almost have to think about repeating all that Phase II work again. So it's getting earlier and earlier. For us, it's late Phase I, early Phase II. And that is a big problem, I think, when to transition this, when to build this into the kind of programs is something that really is changing.
SUSAN SCHAEFFER: And Sarah, given the financial pressures that these companies are under, and the need to generate those proof-of-concept data in Phase II or possibly Phase I, how do you respond to that?
SARAH SHACKELTON: Well, I think that we have a lot of active discussions ongoing with the big biotechs and the big pharma. And we would also put a premium on a CEO who has had some pharma or big biotech experience, so they understand how people at Shire's and the big pharmas of the world are going to look at those assets, and going to look at the commercialization plan.
So we try as much as we can. I mean, I spend a lot of time building up boards. And we're always very eager to bring people into the boards that can both open doors, but also again, bring that big pharma perspective.
SUSAN SCHAEFFER: And let me ask you, Sarah, what's the expectation for the CEOs of your portfolio companies? Are the CEOs intended to build their venture backed companies into the next Genentech or Amgen? Or is there a different objective, or does it depend on the nature of the company?
SARAH SHACKELTON: It will depend on a number of factors. When we're looking for a CEO, we would ideally like to bring on board a CEO who has the breadth of strategic and operational skills, the entrepreneur mindset, all of those capabilities to build for the future. But have the flexibility to change.
SUSAN SCHAEFFER: Is there a structure in place that enables earlier stage conversations between CEOs of larger companies and CEOs of smaller companies, or earlier stage companies, that might be partnered.
ANGUS RUSSELL: I think that's starting to evolve. We've certainly struck a couple of deals in the last year with some VC organizations where they're tapping into our understanding, our knowledge of the markets, and they're leveraging that so that they can then make sure they're developing an asset that would be attractive to us at the end of the day. I think that's an interesting new model.
SUSAN SCHAEFFER: Sarah, what do you think?
SARAH SHACKELTON: Yeah, I think that there's a lot more openness now. There are more two directional conversations going on. So I think it is much easier to access the big biotechs and the big pharmas and have those discussions.
SUSAN SCHAEFFER: And how do you-- we're talking about on the one hand, these financially constrained smaller companies who need to produce data, and larger companies who really have to be thinking about how you'll sell the eventual products and be reimbursed for them. How are CEOs, particularly of the venture backed companies, trying to fill that divide? And is it possible for early stage companies to think about the commercial pieces of the equation earlier on?
SARAH SHACKELTON: I think they have to. I think Angus is absolutely right. They have to think about this much earlier. They have to make sure they've got the expertise. If they don't have any of it on their team that understands the markets, understands these issues of pricing and reimbursement, the later stage issues. So I think they recognize that.
And we as VCs recognize that at a certain point, you may need to put in a different type of CEO if those are the challenges that need to be faced. And that the existing CEO may have taken the company to a certain stage, very admirably, but then you need somebody with a different skill set to come in and take it to the next stage.
SUSAN SCHAEFFER: And that kind of evolution, actually, it's something that's always gone on in our industry with an individual--
ANGUS RUSSELL: I was going to say, I can recognize that in my 14th year in Shire, I would say I'm on my fourth or fifth management rotation of senior management, just because we've outgrown skills, needed to change out those skills along the way. And it's just the natural evolution of a company growing rapidly over that period of time.
SUSAN SCHAEFFER: We've been talking about new skill sets that are needed for CEOs in the bio pharma industry. Are they skill sets that are resident within the industry today?
ANGUS RUSSELL: Not in plentiful supply, in my view at the moment.
SUSAN SCHAEFFER: And Sarah, what do you think?
SARAH SHACKELTON: I would agree with Angus.
SUSAN SCHAEFFER: We will have some final thoughts from our panel in just a moment about what the CEO of tomorrow will need to do to succeed.
NARRATOR: BioCentury, named the 2012 commentator of the year by the European Mediscience Award for excellence in communications and clear, concise commentary.
SUSAN SCHAEFFER: We're back with Shire's Angus Russell and Abingworth's Sarah Shackelton for some final thoughts about the CEO of the future. Angus and Sarah, we've talked so far about what the next generation of CEOs need, what characteristics they need to have to succeed in the changing environment. But what about CEOs who are currently on the job? How do they need to adapt?
ANGUS RUSSELL: I really think they have to understand all the rapid changes that are taking place in our industry and start to focus on market needs rather than just thinking, if we have a great product or a great technology, it's going to sell itself. Which I think was largely the world of the past.
SUSAN SCHAEFFER: And Sarah, what do you think?
SARAH SHACKELTON: Yeah, I think they need to be very flexible in recognition of these changes. And our world is a little different to the world of Shire. But they need to retain this ability to move as the markets and the technologies and their board views and exit strategies evolve.
SUSAN SCHAEFFER: So what kind of flexibility are you talking about? What kinds of things might that affect in their businesses?
SARAH SHACKELTON: They need to be flexible in terms of where they're taking the company and the new skills that they need to learn, and how they build their team, so they make sure they have this expertise. It is different when the cash is tight. That is the key issue that they're facing at the moment. And it is a different set of issues to what I think CEOs at the big biopharma are facing.
SUSAN SCHAEFFER: Do you think that the CEOs who are currently in their positions, broadly in the industry, do they have the ability to adapt?
ANGUS RUSSELL: I think some do. But like any walk of life, I often use a sports analogy, it's no good playing offense when you really should be playing defense. And finding that good all arounder is a tough challenge in any walk of life. So I think, yes, there are always stars who can evolve and grow and learn new skills. But you have to contemplate sometimes, no, you've got to swap out the whole management team and start again.
SUSAN SCHAEFFER: And how about for the smaller companies?
SARAH SHACKELTON: It's definitely the same for us. We try to look for those mindsets at the beginning. But if people can't move to the next step and don't have the right skill sets, then we have to swap them out too.
SUSAN SCHAEFFER: We saw some interesting statistics showing that the average tenure of the big biotechs is nearly eight years. And that contrasts with the average tenure for big pharma of not quite three years. What are the implications for big biotech CEOs' ability to meet the changing marketplace?
ANGUS RUSSELL: It's interesting those time frames. I think about it, because they kind of tally for me with if you're developing a product from base principles, we all know that can take six, eight, 10 years. So I think of a CEO seeing that all the way through, perhaps with a science background, that's explicable. We live in a world, obviously, of the pressure of the markets, delivering earnings, having to meet all these complexities. That's a very fast moving game, and if you don't perform in a very short space of time, you don't last very long.
SUSAN SCHAEFFER: And speaking of time, that's this week's show. I'd like to thank Angus Russell and Sarah Shackelton. For Steve Usdin, I'm BioCentury editor Susan Schaeffer.